The U.S. District Court for the Central District of California entered a consent order for permanent injunction, monetary sanctions, and equitable relief against Monex Deposit Company, Monex Credit Company, Newport Services Corporation, and their owners reported the Commodity Futures Trading Commission (CFTC).
According to the CFTC, between July 16, 2011, and Aug. 31, 2021, the defendants operated a retail over-the-counter trading platform known as “Atlas,” which allowed customers to speculate on precious metals price movements, with Monex acting as the counterparty to every transaction. During this period, the defendants executed thousands of leveraged trades with retail customers, all of which were required to be executed on a regulated exchange but were not, as found by the court in an earlier order.
The order also finds the majority of these trades resulted in losses for Monex’s customers, and the defendants engaged in fraud in the solicitation of customers. Specifically, Monex touted the importance of precious metals as a hedge against economic uncertainty, claiming that precious metals offer “outstanding price appreciation” and “outstanding profit potential.” The order alleges that Monex’s claims about the profitability of leveraged trading of precious metals were misleading and that customers who expected to make profits from such trading instead lost money. Louis and Michael Carabini, who controlled Monex, are liable for its illegal activities, the order said.
“This settlement resolves a long-standing and significant precious metals case that CFTC Enforcement staff fiercely and successfully litigated at the district court level, up to the court of appeals, and back to the district court,” Acting Director of Enforcement Gretchen Lowe said. “First, the CFTC won a judgment against the defendants for illegally offering leveraged retail commodity transactions and established important law on the meaning of ‘actual delivery’ of commodities under the CEA. This settlement resolved the remaining charges of fraudulent solicitation that lured unsuspecting customers into the highly risky leveraged trades and obtained significant restitution for the victims of the unlawful conduct. The CFTC will take any action necessary to prevent and terminate such illegal transactions and return funds to the defrauded customers.”
The order requires the defendants to pay $33 million in restitution to customers and a $5 million civil monetary penalty. In addition, it bars the defendants from trading futures or options on a regulated market unless such trading is for the purpose of hedging. Further, the defendants are banned from registering in any capacity with the CFTC for 10 years.
“This is an historic case for the agency with implications far beyond metals trading. Not only did staff put a stop to a large-scale fraud and shut down an illegal, unregistered trading platform, but in the process developed important case law on the subject of actual delivery of any commodity and fortified the agency’s strong anti-fraud authority. This comes at a critical time when the agency is contending with fraud across a broad range of commodity assets, both traditional and digital,” CFTC General Counsel Rob Schwartz said.